Renting to Family

HermanMunster72

So... due to an ongoing issue with family and bankruptcy, we have purchased a family member a flat and would like them to pay minimal rent (below the market rate) while they get back on their feet. I've been looking around and can't find any definitive information.

Am I correct in thinking that whomever receives the rent will have to declare the income and pay tax even though it's well below the market rate?

Thanks

Mike

Guest101

Can I suggest if you have such a basic question you learn more about being a landlord.

Pixie5740

Yes it's (rental) income and therefore subject to income tax regardless of whether or not you are charging full market rent. There are of course costs you can legitimately use to reduce the amount of tax due.

Something to consider is whether the tenants might need to claim housing benefit. The fact that they are renting from family at below market rate could mean a claim is rejected due to it being a contrived tenancy.

You're already breaking the first rule of being a landlord by renting to family so to make sure you're not breaking any more rules read G_M's guide to Tenancies in England & Wales.

Bluebirdman_of_Alcathays

There is an absolute wealth of information out there, but understandably now you are entering a new line of business you may wish to consult a professional. I would suggest for the first year at least you go and see an accountant - it will more than pay for itself.


The market rate is irrelevant, we all have to pay tax on our income. Your property income will be the rent received, less allowable costs. If you have a mortgage, only the interest element is an allowable cost.


Whoever owns the property will be liable for the tax - if, for example, husband and wife jointly own it, then they will be liable 50/50. That is, unless the beneficial ownership of the property then changes. This can only happen if the property is held under tenants in common. If the property is held as joint tenancy then it is split 50:50 and that is that.

Kynthia

Bluebirdman_of_Alcathays wrote: »

Whoever owns the property will be liable for the tax - if, for example, husband and wife jointly own it, then they will be liable 50/50. That is, unless the beneficial ownership of the property then changes. This can only happen if the property is held under tenants in common. If the property is held as joint tenancy then it is split 50:50 and that is that.

If joint owners aren't married they don't need to split the rent (and therefore any allowable expenses and tax due) according to the percentages of ownership. Only married owners have to do this or change the beneficial ownership.

HermanMunster72

Thanks for the helpful replies, for what is an unusual situation. The link is proving very useful.

Mike

G_M

You're welcome.

Don't overlook reading the links within the link.........